LRBA findings welcomed with ‘no material risk’ for SMSFs found

The SMSF Association welcomes the findings from the Council of Financial Regulators (CFR) report that limited resource borrowing arrangements (LRBAs) pose no material risk to the superannuation or broader financial systems.

SMSF Association CEO John Maroney says: “In 2019, our response to the CFR was that an outright ban on LRBAs could be avoided by ‘mitigating’ risks to this SMSF asset class.

“What has occurred in the intervening three years reinforces our view that a ban on LRBAs would be overkill, with the report highlighting that SMSF borrowings remain a small percentage of total SMSF assets and, as such, pose little risk to financial stability while helping assisting many small businesses, in particular, meet their retirement income goals.”

The report also downplays another criticism of LRBAs – their impact on property prices – by stating they only comprise a small share of total housing credit.

Maroney says the ongoing viability of LRBAs is due, in no small part, to the integrity measures introduced in 2018, including changes to the total superannuation balance and non-arm’s length income rules (NALI).

“In our opinion these measures have greatly improved the system, helping ensure LRBAs are used responsibly.

That said, it is important for SMSF trustees considering an LRBA to get specialist advice as they can be complex arrangements which require carefully assessment of the risks, benefits and costs.”

Maroney says one-stop property shops advocating LRBAs and providing unlicensed personal advice remain a concern. “We have long supported a crackdown on their activities and believe ASIC has done much to curtail their nefarious activities. But the fact they still operate highlights the need for the entire sector to remain vigilant to ensure this debt instrument remains available to the vast majority who use it responsibly.”

Maroney concludes that LRBAs highlight the importance of quality of advice, and that Michelle Levy’s Review, being handed down on 16 December, will hopefully bring more clarity to this. Certainly, for those attending the SMSF Association National Conference in Melbourne on February 22-24, they will have the opportunity to hear Levy and fellow industry experts discuss the findings and implications of the Review across the industry.